Weak Manufacturing Performance Across Global Regions

By Lucia Mutikani and Jonathan Cable
WASHINGTON/LONDON (Reuters)
Manufacturers in the United States, Europe, and Asia experienced weak performance last month, grappling with low demand, according to surveys on Thursday, raising concerns about a sluggish global economic recovery.

A report indicated that U.S. manufacturing activity fell to an eight-month low in July, reflecting a decrease in new orders, which correlates with a downturn in the euro zone and a slowdown in China’s manufacturing affecting its Asian neighbors.

Contrarily, British factories reported their best month in two years, with increases in both output and hiring.

The Institute for Supply Management’s U.S. manufacturing Purchasing Managers’ Index (PMI) declined to 46.8 in July, down from 48.5 in June. A PMI reading below 50 signals contraction in the manufacturing sector, which comprises 10.3% of the U.S. economy. Despite this decline for four consecutive months, the PMI remains above the 42.5 level typically indicating overall economic expansion. Data from the government and the Federal Reserve indicates that the industry has stabilized with a rebound in factory production during the second quarter.

The HCOB’s final euro zone manufacturing PMI, compiled by S&P Global, remained unchanged from June at 45.8 in July, marking over two years below the 50 growth threshold. An output index that feeds into the composite PMI fell to a seven-month low of 45.6.

Leo Barincou from Oxford Economics noted the absence of a clear growth driver due to weak global demand and a lack of turnaround in manufacturing inventory within the euro zone.

Germany’s manufacturing downturn accelerated, accounting for about a fifth of Europe’s largest economy, while France’s industry contracted at its fastest rate in six months.

In the UK, however, the manufacturing index rose to 52.1, its highest since July 2022, where optimism increased following Prime Minister Keir Starmer’s election victory. The Bank of England reduced interest rates by a quarter percentage point to 5%, having maintained them at a 16-year high.

The Federal Reserve hinted at potential interest rate cuts beginning in September if the U.S. economy follows its expected course. Likewise, after reducing its deposit rate in June, the European Central Bank may implement two additional rate cuts this year, according to a Reuters poll.

ASIAN STRAIN

Despite growth in manufacturing, Japan’s manufacturing activity shrank and South Korea’s growth slowed, impacted by weak domestic demand and rising costs, compounded by a contraction in China’s factories.

China’s Caixin/S&P Global manufacturing PMI plunged to 49.8 in July, down from 51.8 the previous month, marking the lowest level since October and falling short of analysts’ forecasts.

This decline aligns with an official PMI survey revealing a manufacturing activity drop to a five-month low. Shivaan Tandon, a markets economist at Capital Economics, stated the outlook for below-trend global growth will likely continue affecting manufacturing throughout Asia this year.

Japan’s final au Jibun Bank manufacturing PMI decreased to 49.1 in July from 50.0. In contrast, the Bank of Japan implemented a rate increase for the first time in 15 years and announced plans to reduce bond purchases.

South Korea, a key export economy, improved with a PMI reading of 51.4 in July, remaining above the 50-mark despite a slowdown from June’s 26-month high.

China’s deceleration could hinder regional business growth. Even though South Korea’s exports surged to an impressive pace fueled by strong chip sales, they fell short of market predictions.

Factory activity in Taiwan expanded although slightly reduced from June, while India’s manufacturing continued to show solid growth due to ongoing robust demand.